Lifting the Fog: Navigating Penalties in the Affordable Care Act

• Publication year: 2022

46 Creighton L. Rev. 207. LIFTING THE FOG: NAVIGATING PENALTIES IN THE AFFORDABLE CARE ACT

LIFTING THE FOG: NAVIGATING PENALTIES IN THE AFFORDABLE CARE ACT

Edward A. Morse(fn*)

"[W]e have to pass the bill so that you can find out what is in it, away from the fog of the controversy."

-Speaker Nancy Pelosi, March 9, 2010.(fn1)

I. INTRODUCTION ................................... 208

II. AN OVERVIEW OF THE AFFORDABLE CARE ACT ................................................ 212

A. Diagnosing Infirmity in the U.S. Healthcare System ............................ 212

B. Formulating a Prescription .................... 217

C. Implementing the Treatment Plan ............. 220

1. The Employer Mandate ...................... 220

a. Employers Not Offering "Minimum Essential Coverage" ...................... 220

b. Employers Offering "Minimum Essential Coverage" .................... 221

2. The Individual Mandate ..................... 225

3. "Minimum Essential Coverage" ............... 231

III. LEGAL CHALLENGES TO MINIMUM COVERAGE FOR "PREVENTATIVE CARE" ........ 237

IV. EXCHANGES AND TAX SUBSIDIES: ANOTHER FLY IN THE OINTMENT? .......................... 247

A. Section 36B: Did Congress Mean What It Wrote? ......................................... 248

B. Implications for Employers and Other Exchange-Based Concerns ..................... 252

V. CONCLUDING OBSERVATIONS ................... 253

I. INTRODUCTION

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act,(fn2) followed one week later by amendments and related provisions in the Health Care and Education Reconciliation Act of 2010.(fn3) Together, these laws (hereinafter jointly referred to as the "Affordable Care Act" or "the Act") introduced significant changes into the delivery of health insurance coverage. Through a complex thaumaturgy involving mandates on employers and individuals (coupled with forced exactions for the noncompliant), restrictions and mandates on insurers, federally-directed cooperation from the states, and subsidies from the federal government, the Affordable Care Act attempts laudable goals that include expanding access to health insurance coverage and the reduction of health care costs.(fn4)

Much political wrangling preceded passage of the Affordable Care Act, which was highly controversial and narrowly enacted by partisan majorities in both houses of Congress.(fn5) Following its passage, the primary locus of controversy moved to the courts and to administrative agencies, where the government and others affected by the Act have sought to shape its implementation and enforcement.

In National Federation of Independent Business v. Sebelius,(fn6) the United States Supreme Court resolved the first wave of constitutional challenges to the Act by upholding the individual mandate to maintain insurance coverage and its related penalties under the federal taxing power.(fn7) However, it also struck down a provision requiring states to expand Medicaid coverage to reach 133% of the federal poverty guidelines at the pain of losing all their federal Medicaid funding, severing this provision from the rest of the Act.(fn8) The Court's affirmation of state autonomy likely presents some problems that were unintended by Congress,(fn9) but the Court's decision to uphold the rest of the Act removed a significant threat to its implementation.

On the administrative front, regulations spawned by the Act are generating new legal challenges that are currently working their way through the courts. In particular, the Obama Administration has promulgated regulations mandating coverage for contraception and sterilization services, which have generated public outcry from individuals and employers with religious and/or conscientious objections purchasing this coverage.(fn10) Litigation challenging these regulations is being pursued at the district court level in many different jurisdictions, providing another source of uncertainty for insurers, employers, and others seeking to navigate through this new health care regime.(fn11)If unabated, this contraception mandate raises a significant barrier to compliance with the Act for many scrupulous Americans, resulting in financial penalties that put affordable insurance coverage further out of reach for many Americans solely because of their beliefs about contraception, abortion, and sterilization.

One of the primary mechanisms for enhancing affordability under the Act includes the advance payment of premium tax credits for lower income citizens, which are paid directly to insurers to reduce the cost of insurance coverage. These credits require a bureaucratic apparatus known as an Exchange in order to provide access to government-approved insurance coverage, as well as to determine eligibility for the tax credit subsidy.(fn12) Exchanges do not appear organically, but instead require human effort to develop and implement the necessary bureaucratic structures. In drafting key provisions of the Act, Congress apparently presupposed that states would cooperate in creating these Exchanges. States that do not cooperate as planned may add further barriers to implementing the Act's intention to expand insurance.(fn13)

Thus, although the "fog of the controversy" associated with passing the Act may have lifted, it is fair to say that visibility is still limited. Learning what is in the Act is itself a substantial undertaking; the Act spans nearly one thousand pages in the official statutes and now includes hundreds of additional pages of administrative gui-dance.(fn14) But determining how even a limited number of important new rules will apply in various situations, along with their behavioral effects, also presents an ongoing challenge for citizens and institutions affected by the Act, as well as the lawyers who advise them.

This Article examines the tax penalties affecting employers and individuals, which are a critical part of the scheme for regulating coverage under the Act. As discussed below, those penalties inflict potentially significant fiscal consequences for employers and individuals (including those of limited means). In some cases, the likely behavioral consequences for these penalties may undermine, rather than support, the purposes of the Act. Further, by combining these penalties with regulations requiring insurance coverage for contraception and sterilization services, the Obama Administration adds a new barrier to achieving expanded coverage. Not only does the contraception and sterilization mandate conflict with legal and social traditions of religious freedom and toleration, but it also singles out citizens with religious and/or conscience objections and effectively makes their health insurance coverage less affordable.

Part II of this Article provides an overview of significant provisions in the Act and their intended effects on employers, individuals, and insurers. These provisions include the employer mandate, the individual mandate, and requirements for minimum essential coverage. Part III briefly explores the Obama Administration's approach to implementing the so-called "preventive care" provisions of the Act involving women's health, including the conflict with religious and/or conscientious beliefs on contraception and sterilization practices and the implications for insurance coverage. Part IV addresses the implications of State decisions to create Exchanges on the effectiveness of the Act, including the availability of tax credits to finance insurance coverage. Part V provides some concluding observations about using taxing powers to regulate behavior and implications for personal liberty in this context.

II. AN OVERVIEW OF THE AFFORDABLE CARE ACT

The Affordable Care Act has many moving parts that are supposed to work together to make health care in the United States more accessible and affordable.(fn15) Although a comprehensive treatment of all these parts is beyond the limited scope of this Article, a general understanding of health care delivery issues provides a helpful backdrop to contextualize the respective role of tax penalties and credits discussed below. Accordingly, Parts II.A and II.B provide a brief overview of the U.S. healthcare system and some of the significant problems that the Affordable Care Act attempts to address. Those who are thoroughly familiar with this environment can skip directly to Part II.C, which focuses in greater detail on the employer and individual penalties and the minimum coverage provisions necessary to create an exemption from the penalty regime.

A. Diagnosing Infirmity in the U.S. Healthcare System

Most Americans depend on private sector resources for health care coverage. The federal government currently extends health insurance benefits to the aged through Medicare, to the poor through Medicaid, and to children through the Children's Health Insurance Program ("CHIP").(fn16) However, as of 2010, approximately 55.3% of the U.S. population obtained health insurance coverage through their employers and 9.8% through other private sources.(fn17)

Approximately 16.3% of the U.S. population-about 49.9 million people-remained uninsured in 2010.(fn18) Nearly 40% of the uninsured are between the ages of eighteen and thirty-four,(fn19) and more than one-fourth of persons in this age group are not insured; a higher rate than among any other age group.(fn20)...